The FBI is investigating a report filed by an unnamed Bitfinex user alleging that funds were stolen from their account, CoinDesk has learned.

According to an incident report filed on 14th September, a Cambridge, Massachusetts, resident stated that they lost $1.3m in bitcoin tied to the hack and subsequent $70m theft from Bitfinex.

The Cambridge Police told CoinDesk that the matter had been referred to the FBI after an initial investigation. Bitfinex representatives have previously said that they are working with the FBI as part of its investigation into the hack.

The incident report – and word that the FBI is looking into the matter – offers a rare detail into the post-hack investigation said to be taking place. However, the status of the investigation and the extent to which the FBI has pursued the lead remains unknown at this time.

The resident said that they learned that $1.3m had been stolen from their Bitfinex account. According to the document, the user had $3.4m in total personal holdings.

It was further reported that the loss incurred was reduced to $720,000 when factoring in IOU tokens issued by Bitfinex after the exchange initiated its recovery efforts.

The document does contain one other idiosyncrasy. The reporting officer noted that the amount translated to "70,000,000 in bitcoin", which roughly corresponds to the amount, in dollars, lost during the hack.

The Bitfinex hack rocked the bitcoin world when it occurred in early August, resulting in the loss of nearly 120,000 bitcoins. The incident impacted bitcoin markets during the month that followed, though prices have since recovered.

H/t Brian Cohen, MrFelt

The text of this report has been updated for clarity.

Image Credit: Arnaldo Jr / Shutterstock.com

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You might not have noticed, but ethereum is under attack.

What began over two weeks ago with spam attacks that led to large-scale ethereum node outages has escalated into a battle that has pitted the platform's developers against unknown antagonists. This might sound like an exciting Hollywood movie, but it's mostly been carried out on message boards and with code.

Shots were first fired at ethereum's big developer conference, Devcon2, with a mysterious message written in German and delivered via transaction method payload. The message said "Go home", but to those who have been following the network's contentious changes this summer, the full meaning was clear.

Since then, block creation and transactions have continued to be impacted, with nodes syncing up to the network more slowly. But while various fixes have since been implemented, the attacker continues to find vulnerabilities to exploit and, in turn, create new ways to launch denial-of-service (DoS) attacks.

The result: the network is being flooded with transaction spam.

Blockstack co-founder Muneeb Ali called it a "cat-and-mouse game" that could potentially continue to slow down transactions on the network, the second most popular by market cap.

Most of the attacks have thus far affected nodes running the Go-version ethereum client (Geth), the most popular implementation of ethereum, though Parity, an alternative client released at the conference, has been impacted in some instances.

The latest release, called "Dear Diary", aims to stop the "root cause" of many of the attacks with a technique called "journalling."

Anatomy of an attack

One problem that has emerged for client developers is that those behind the attack are constantly switching their tactics.

The attacker or attackers are deploying smart contracts to the ethereum blockchain, and then committing transactions that impact how clients handle data, slowing them down to the point that blocks and transactions become delayed.

(For a peek into what's going on, see the barrage of small transactions sent by the attacker to overwhelm the network).

The first line of attack targeted an out-of-memory bug, which the Geth team moved to fix in a subsequent software update.

"In ethereum one of the challenges is that we have this huge database that grows much faster for example than bitcoin," said ethereum developer Péter Szilágyi, who works on Geth, adding that the attackers have taken advantage of this issue.

"We never thought about this attack vector," he added.

The focus on Geth has prompted some users to spin up nodes using Parity. In the wake of the first attacks, most miners made the switch.

However, Geth is still by far the most popular client, numbering nearly 7,000 nodes compared to Parity’s 900, although the numbers are constantly fluctuating.

Meanwhile, Ethereum Foundation IT consultant Hudson Jameson chose to emphasize that the Geth team has been able to fix every issue that's been thrown at it so far. This argument was also stressed by ethereum miner Jonathan Toomim, who called the fixes, deployed within days, "impressive".

"The network will go on, and these nuisance attacks will stop eventually," he reasoned.

Yet for how long remains unclear. Each time Geth or Parity releases an update, the attacker finds a new vulnerability.

Those behind the attacks don't seem to mind the cost of doing so, having spent thousands of dollars worth of ether – the cryptocurrency of the ethereum network – to fuel the attacks.

"To date, the attacker has spent over $3,000 worth of ether, solely in gas-costs," Jameson estimated.

Impact on users

Many argue that the attacks are an inevitable result of the way ethereum is designed, and that it has a  "large attack surface."

More on-platform capabilities means that there are more opportunities for trouble, at least compared to other blockchain networks, which are less ambitious..

"The larger problem is that the way ethereum is designed. There’s too much exposure so the attacker can trigger certain things or send certain types of transactions," Ali said. "Think of it this way: ethereum allows people too much freedom over what they can do to someone else’s computer."

Even if Geth nodes are no longer crashing completely, however, it has resulted in an overall slower network, making ethereum less available to anyone who want to spin up a smart contract or send a transaction.

Since the attacks, some users have reported having problems accessing their funds with Mist, the popular ethereum wallet.

One user even observed when switching pools that mining profitability has decreased for smaller pools, which is potentially a concern for an ecosystem that doesn't want bigger miners to have more control.

The network is also more vulnerable overall if all of its nodes are not functioning properly.

"Causing large portions of the nodes or miners to drop off the network, or fall behind, is naturally rather severe, since such attacks can be a prequel to a double spending-attack," Jameson said.

However, some users seem unfazed, with many developers continuing to work on other projects. Two ethereum projects, FirstBlood and SingularDTV, held crowdsales to raise project funds amid the attack.

Finding a fix

As far as reducing the impact, developers have come up with ideas for how to fix the problem with medium- to long-term changes, in what Jameson calls an "ecosystem-wide effort."

"One of the solutions is to make it more expensive to perform these kinds of attacks," Szilágyi said.

He explained that raising the prices for certain ethereum commands might mean protocol-level changes to Metropolis, ethereum's next big software release that is intended to be more developer-friendly.

Jameson also mentioned rebooting the bounty program, through which developers can earn bitcoin for detecting and reporting bugs. "That way people can submit their flaws legitimately instead of attacking the network," he said.

However, his hope is that the detection of these bugs will make ethereum stronger in the end.

"In the long-term, these attacks increase the resiliency of the Ethereum network," Jameson added said, arguing that the diversity of clients handicaps an attack from impacting all nodes.

Role of the foundation

Others seem to think that it's unclear how quickly that ethereum will recover.

"The Ethereum Foundation is trying to downplay them and spin the situation in a good way, saying that attacks will help to harden the network," ethereum classic lead developer, Arvicco, argued.

While the comments are not surprising given that he leads an alternative project, they point to the overall sentiment of those who have been critical of the organization that funds protocol development and its handling of the situation.

Others remain uncertain what to take away just yet.

Ali said he thinks ethereum team has done a good job thus far in addressing the vulnerabilities.

Still, he suggested there might be no end in sight should ideological motivations to disrupt the network continue unabridged, but that this ultimately might be the best outcome.

"[By then,] most of the practical issues with the software are fixed so that it becomes hard enough and it’s no longer a problem," he said, adding: 

"I think it's hard to predict."

Pete Rizzo contributed reporting.

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The worldwide development network for the United Nations is pursuing a series of blockchain-focused projects.

Through its Alternative Financing Lab, an effort launched last year, the United Nations Development Programme is looking into applications in microfinance, remittances and connected vehicles, among others.

That work was quietly detailed last month in a UNDP blog post, penned by members of the Alternative Financing Lab. The lab said it was partnering with developers in Serbia and Moldova, among other regions, on blockchain projects, and indicated that it planned to expand these efforts in the months ahead.

Of particular interest, according to the post, is the use of blockchain for exchanging funds.

Lab representatives wrote:

“When it comes to UNDP’s emergency response in employment, we have a hunch that blockchain could provide a more effective way of transferring and tracking funds, and shifting our strategy in line with what is happening in the field – this is a work in progress though but one we’re excited about.”

Last month’s blog post isn’t the first time the UNDP has expressed its interest in the technology for use in cash transfers. In May, the organization said that it was looking for partners to develop a bitcoin-based money delivery system.

“The global development field needs access to an entity or system that is scalable, secure, flexible, cost efficient and sustainable in the long run,” it said at the time.

Nor is the the lab the only part of the UN’s global community that is looking at possible blockchain applications. Earlier this year, the United Nations Children’s Fund began soliciting pitches for related projects, and in August announced that it was hunting for a point person on blockchain.

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The central bank of Russia has successfully completed a distributed ledger trial.

Dubbed "Masterchain", the Bank of Russia described the system as "a technical prototype for financial messaging" that uses a distributed ledger built with participation from undisclosed market participants. The prototype, it further said, provides a means to pass financial information between parties, ensuring "prompt confirmation of data actuality".

According to bank representatives, the prototype could serve as a basis for future systems, enabling the development of new products and services that use the distributed ledger.

News of the distributed ledger trial represents the strongest endorsement of the technology from Russia's central bank to date.

Officials from the institution have indicated in the past that they see a potential role for the tech in Russia's financial system, both as a means for data exchange – shown in the Masterchain project – as well as future applications in the area of digital currency.

Bank of Russia deputy governor Olga Skorobogatova said in a statement:

"The creation of prototypes and [the] joint inquiry of applicabilities help both the regulator, and the market participants understand outcomes, estimate capacities, mitigate the risks of using different technologies, and decide on follow-up actions. This is a good groundwork for onward progress."

Perhaps most notably, Skorobogatova said that the Bank of Russia was weighing whether to use Masterchain as part of a "new-generation financial infrastructure," a development that comes amid an uncertain environment in Russia surrounding the technology.

Skorobogatova also suggested that the prototype be used in conjunction with a fintech working group the Russian central bank said it is launching.

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Will bitcoin, the much-hyped $10bn distributed digital currency network, scale?

The open question is set to be addressed at the latest in a series of developer conferences aimed at the issue this week. Scaling Bitcoin, scheduled to run from 9th to 10th October, is the third conference of its kind since divisions in the digital currency's community began following debate on how to accommodate more transactions, and some argue, more users.

While the conference has lost some of its former intrigue, what's at stake is still the development roadmap for bitcoin, a project that critics argue is losing ground (or refining its value proposition) amid increased competition.

Still, the conference won't just be about scaling, as it has expanded its mandate to focus on improving bitcoin more broadly. For example, no announcements are expected related to the scaling issue, with work on a potential solution, Segregated Witness, still continuing.

So, what's there to see in person or via the livestream?

Organizers say the conference's technical talks will be divided into six sections, with the schedule promising to see top developers address the payment network's problems including privacy and network security.

So far, the first two iterations have proven to be marquee events, with developers bringing big new ideas to the table. Forward-looking technical projects, such as capacity-boosting Segregated Witness and Bitcoin-NG, a proposed experimental overhaul of bitcoin, have been unveiled in the past.

A livestream will be available, with an IRC channel for the remote audience to discuss and ask questions. If you don't have the time to cull through two days of talks, here's a roundup of forward-looking talks that we’ll be watching:

1. Fungibility Overview — Adam Back and Matt Corallo

Since four other talks focus on the concept of "fungibility", this introductory talk is probably worth watching.

At its most basic, fungibility is the idea that one bitcoin should be as good as any other. While it's something money users tend to take for granted, bitcoin's blockchain is transparent enough that fungibility might prove to be an issue.

The concept goes hand-in-hand with transaction privacy, since shielding transaction details means that the money will no longer store memory of past events, at least not that others can see.

It's one reason developers appear to be so obsessed with bringing privacy to bitcoin.

Hashcash inventor and newly appointed Blockstream CEO Adam Back, who has been an active proponent of fungibility and privacy, will deliver the presentation.

2. Onion Routing in Lightning — Olaoluwa Osuntokun

The Bitcoin Lightning Network is seen as the future of bitcoin payments, but as a new project it’s still not entirely clear how all the pieces will fit together into a working payment network.

Onion routing is a one way of bringing privacy to the Lightning Network, and it's a topic that perhaps hasn't gotten much attention given recent tests.

Osuntokin has spearheaded this development, releasing onion routing standards earlier this summer for Lightning projects to follow.

3. Unlinkable Outsourced Channel Monitoring — Tadge Dryja

Speaking of off-chain microtransaction networks, in this talk Lightning Network creator Tadge Dryja will speak about one big challenge to the capacity-boosting top-level bitcoin network.

The way the Lightning Network works, there needs to be someone constantly monitoring the channel to ensure that users don't cheat others out of their money. If one party cheats, the other party has to respond within a time-frame.

So, it's been suggested to outsource this job to a specialist who will watch for fraud, while still not giving the third-party any control over the money.

But how Lightning will deal with this is still an open question.

Dryja’s talk is sure to add to this discussion. The word "unlinkable" suggests something to do with private transactions, potentially bringing something new to the Lightning Network discussion.

4. Sidechain Scaling — Paul Sztorc

Sidechains are another much-anticipated bitcoin feature, currently spearheaded by Montreal-based Blockstream.

To encourage experimentation in the space, the interoperable blockchain idea could potentially allow users to move bitcoin to other blockchains with experimental features, say boasting new privacy techniques or with new ethereum-like smart contract functionality.

Paul Sztorc, who's developed his own sidechain proposal, known as Drivechain, will explore how these interoperable blockchains might help with bitcoin's scalability problem.

5. Lessons Learned With Segwit — Greg Sanders

Segwit, the contentious capacity-boosting update to bitcoin, is just around the corner. But, it took over a year to get to the point where it could be added to the bitcoin software.

The change saw months of tests and some debate, which is likely to continue even after its release. Given the backdrop, the talk could prove to be a must-watch.

Blockstream core tech engineer Greg Sanders will speak to the lessons learned during the long and imperfect process, perhaps to help apply it to future big coding challenges, of which there are sure to be many.

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Federal Reserve board member Lael Brainard is scheduled to issue new remarks on blockchain technology later this week.

On 7th October, Brainard will speak at the Institute of International Finance Annual Membership meeting, where he is expected to address blockchain in the context of the US central bank's larger, ongoing study on electronic payments.

The news coincides with broader efforts by global central banks to better understand the technology, with institutions including the De Nederlandsche Bank, the Monetary Authority of Singapore and the Bank of England.

Notably, the speech won't be the first time Brainard has addressed the subject, following a prior speech in April in which she advocated that regulators seek to understand the potential benefits of the technology before taking further action.

At the time, Brainard pushed for blockchain innovators to be mindful of interoperability as well, warning that "highly fragmented" systems could be built should the industry environment become too competitive.

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